Tax Increases for Higher-Income Individuals

Tax Increases for Higher-Income Individuals

While many popular tax breaks for individuals were included in the American Taxpayer Relief Act, it did not include good news for those earning higher incomes. With the Act, higher-income individuals face the first major tax increase in more than 20 years.

Rates on Ordinary Income. For most individuals, the federal income tax rates for 2013 will be the same as last year: 10%, 15%, 25%, 28%, 33%, and 35%. However, the Act increases the maximum rate for higher-income folks to 39.6% (up from 35%). For 2013, this change only affects singles with taxable income above $400,000, married joint-filing couples with taxable income above $450,000, heads of households with taxable income above $425,000, and married individuals who file separate returns with taxable income above $225,000. After 2013, these taxable income amounts will be adjusted for inflation. These changes are permanent (until further notice).

Note: Higher-income folks may also get hit by the new 0.9% Medicare tax on wages and self-employment income and the new 3.8% Medicare contribution tax on net investment income. If so, they can face combined tax rates in excess of the advertised rates.

Rates on Long-term Gains and Dividends. The tax rates on long-term capital gains and dividends will also remain the same as last year for most individuals. However, the Act increases the maximum rate for higher-income folks to 20% (up from 15%). For 2013, this change only affects singles with taxable income above $400,000, married joint-filing couples with taxable income above $450,000, heads of households with taxable income above $425,000, and married individuals who file separate returns with taxable income above $225,000. After 2013, these taxable income amounts will be adjusted for inflation. These changes are permanent (until further notice).

Note: Higher-income folks may also get hit by the new 3.8% Medicare contribution tax on investment income, which can result in a maximum 23.8% federal tax rate on long-term gains and dividends instead of the advertised 20%.

Personal and Dependent Exemption Deduction Phase-out. The last time we saw a phase-out rule for personal and dependent exemption deductions was 2009. Sadly, the Act brings back the phase-out deal. As a result, your personal and dependent exemption write-offs can be reduced or even completely eliminated. For 2013, phase-out starts at the following Adjusted Gross Income (AGI) thresholds: $250,000 for singles, $300,000 for married joint-filing couples, $275,000 for heads of households, and $150,000 for married individuals who file separate returns. After 2013, these threshold amounts will be adjusted for inflation. This change is permanent (until further notice).

Itemized Deduction Phase-out. The last time we saw a phase-out rule for itemized deductions was also in 2009. Unfortunately, this phase-out provision is back too, thanks to the Act. As a result, you can potentially lose up to 80% of your mortgage interest, state and local taxes, charitable contributions, and miscellaneous itemized deductions if your AGI exceeds the applicable threshold. For 2013, the thresholds are $250,000 for singles, $300,000 for married joint-filing couples, $275,000 for heads of households, and $150,000 for married individuals who file separate returns. After 2013, these threshold amounts will be adjusted for inflation. This change is permanent (until further notice).

Searching for an audit, tax and accounting partner that can provide freedom from financial anxiety? Gilbert has it all… pinpoint expertise, experience-driven insights, lightning-fast responsiveness and personalized communications. Our solutions turn knowledge into power. And we’ve been doing it for over 30 years, helping individuals and organizations throughout Northern California succeed. When it comes to the personal attention and service we offer, nobody does it better. You don’t have to worry. Relax. We got this!

Post navigation

Related Articles

Gilbert Associates is proud to announce the adoption of the MindBridge Ai Auditor™, an audit analytics software platform that maximizes audit assurance through the use of Artificial Intelligence. The MindBridge... Read more →

There’s an old saying regarding family-owned businesses: “Shirtsleeves to shirtsleeves in three generations.” It means the first-generation owner started in shirtsleeves and built the company up from nothing but, by... Read more →

Gilbert Associates, Inc.

Audit, tax and accounting challenges shouldn’t stress you out. With Gilbert Associates, you can relax. Let us know how we can help.

Connect with Us

Article Archives

Testimonials

“Gilbert Associates is professional, helpful, knowledgeable and very positive to work with.”

“When I decided to go into business for myself, I knew I would need to have a great CPA on my side. The staff at Gilbert Associates have been a valuable resource since day one!”

-Mark and Jennifer Snyder

“Thank you all for your help and guidance through the years. It is great working with all of you.”

-Colorcoat, Inc.

Colorcoat, Inc.

“I appreciate the assistance I have received from Gilbert Associates over the past 12 years. Thank you for doing such a great job!”

– Susan Moody

“Gilbert Associates, Inc. exemplifies professionalism and they are very personal to you and your account.”

-Stephen and Linda O’Neill

“After 20+ years of service, the tax team has got it so I can relax!”

-Cathleen Gardella

Cathleen R. Gardella

“We have found Gilbert Associates to be extremely helpful in providing assistance to our non-profit organization. They have been gracious with their time and explanations when questions have arisen and have conducted themselves in a professional manner at all times. We would highly recommend their services.”

– Sandy Shumaker, AHDI-West

“Gilbert Associates are easy to work with and make a busy time less stressful.”

-California Primary Care Association

“Gilbert Associates has provided consistently reliable and professional services for me over the past 20 years.”

– Alan Koppes

“I have worked with numerous accounting firms over the years, as I am a financial advisor, and I can truthfully say none are more responsive and professional than Gilbert Associates. I highly recommend them.”